Nikkei falls as Japan slips into recession; BOJ's ETF buying supports

* Japan's GDP fall cements views Abe will call election
* Tax hike delay seen likely
* BOJ's ETF-buying plan supports mood
* MUFG soars on share buyback plan
By Ayai Tomisawa
TOKYO, Nov 17 (Reuters) - Japan's Nikkei share average fell
on Monday morning after Japan's economy unexpectedly slipped
into recession, prompting investors to take profits from recent
gains on the view that Prime Minister Shinzo Abe will postpone a
planned sales tax hike.
Japan's economy unexpectedly shrank an annualised 1.6
percent in July-September after a severe contraction in the
previous quarter.
The Nikkei dropped 1.7 percent to 17,194.41 in
mid-morning trade after rising 0.6 percent on Friday.
Traders said that investors are selling on the bad figures,
but the scenario that Abe would call for a snap election and
delay a sales tax hike remains unchanged.
"Abe would be able to prevent sentiment from deteriorating
further by delaying the tax hike, so in this sense it's
positive," said Nobuhiko Kuramochi, a strategist and economist
at Mizuho Securities, adding that it adds to the case for the
Bank Of Japan to continue easing policy and for Abe to
concentrate on the real economy.
The Nikkei has risen about 10 percent since Oct. 31, after
the Bank Of Japan surprised the market with additional easing
and the Government Pension Investment Fund decided to increase
its allocation to Japanese equities.
Investors also chased the market higher last week on reports
Abe is preparing to delay a second rise in the sales tax in an
attempt to energise Japan's sluggish economy.
Some traders downplayed the market's fall, saying that
short-term investors who lapped up shares over the last few
weeks are booking profits.
"There were a lot of short-term punters in the
market...typical long-only investors are not participating
heavily, so the market's falling some 1.5 percent is not really
going to be something people are paying attention to," said a
senior trader at a foreign brokerage.
He said sentiment was supported by the BOJ's move on Friday
to purchase 38 billion yen of exchange-traded funds (ETFs), as
part of its recently beefed-up economic stimulus campaign. The
news was announced by the BOJ after the market closed on Friday.
"Anytime the Topix is down in the a.m. session, you would
think that there may be some ETF buying in the p.m. session," he
said.
Recent gainers such as retail stocks were weak on
profit-taking, with Takashimaya Co shedding 3.6 percent
and Aeon Co falling 2.1 percent.
Exporters languished, with Toyota Motor Corp
dropped 0.7 percent and Honda Motor C0 fell 1.3
percent. The dollar quickly pulled back to 116.18 yen after it
dollar jumped to a new seven-year high of 117.06 yen in a
knee-jerk reaction to the GDP numbers.
Bucking the weakness, Mitsubishi UFJ Financial Group
soared after announcing a plan to buy back 100 billion
yen worth of shares.
The broader Topix dropped 1.6 percent to 1,378.55,
and the new JPX-Nikkei Index 400 declined 1.7
percent to 12,572.96.
(Editing by Eric Meijer)